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CHAPTER 5 MARKET EQUILIBRIUM ANALYSIS 2 nd Semester, S.Y 2013 – 2014. Market Equilibrium. Market Equilibrium is a situation in which the quantity demanded of a good or service at a particular price is equal to the quantity supplied at that price. Price as a Regulator. - PowerPoint PPT Presentation
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BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
CHAPTER 5MARKET EQUILIBRIUM ANALYSIS2nd Semester, S.Y 2013 – 2014
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Market Equilibrium
Market Equilibrium is a situation in which the quantity demanded of a good or service at a particular price is equal to the quantity supplied at that price.
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Price as a Regulator
The price of a good regulates the quantities demanded and supplied. If the price is too high, thequantity supplied exceeds the quantity demanded. If the price is too low, the quantity demanded exceeds the quantity supplied. There is one price at which the quantity demanded equals the quantity supplied.
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Equilibrium Price and Quantity
Equilibrium price is the price at which the quantity of a product demanded by consumers the quantity supplied by producers are equal.
The quantity bought and sold at that price is the equilibrium quantity. The equilibrium price is also known as the market-clearing price: it is the price that “clears the market” by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price, and vice versa.
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Surplus, Shortage, and Equilibrium
The market may experience a surplus (excess supply), which is the result of quantity supplied being greater than quantity demanded, usually because prices are too high. Or a shortage (excess demand) may occur, the result of quantity demanded being greater than quantity supplied, usually because prices are too low.
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
A
The Graphical Interaction of Supply and Demand
Pric
e
500
400
350
300
250
200
150
100
S
D
Quantity
C
Excess demand
1 2 3 4 5 6 7 8 9 10 11 12
Excess supply
E
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
PriceQuantity
DemandedQuantity Supplied
Shortage (-) or Surplus (+)
50 22 0 -22
100 15 6 -9
150 10 10 0
200 7 13 6
250 5 15 10
Market Analysis for T-shirts
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
PriceQuantity
Demanded(Original)
Quantity Demanded
(New)
Quantity Supplied
50 22 32 0
100 15 25 6
150 10 20 10
200 7 17 13
250 5 15 15
Change in Demand and Equilibrium Price
Increase in Demand
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
PriceQuantity
Demanded(Original)
Quantity Demanded
(New)
Quantity Supplied
50 22 15 0
100 15 6 6
150 10 4 10
200 7 2 13
250 5 1 15
Change in Demand and Equilibrium Price
Decrease in Demand
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
PriceQuantity
DemandedQuantity Supplied(Original)
Quantity Supplied
(New)
50 22 0 7
100 15 6 15
150 10 10 20
200 7 13 25
250 5 15 27
Change in Supply and Equilibrium Price
Increase in Supply
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
PriceQuantity
DemandedQuantity Supplied(Original)
Quantity Supplied
(New)
50 22 0 -
100 15 6 -
150 10 10 -
200 7 13 -
250 5 15 5
Change in Supply and Equilibrium Price
Decrease in Supply
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Equilibrium price falls when there is a decrease in demand or an increase in supply. Equilibrium price rises when there is an increase in demand or a decrease in supply. In other words, when consumers want less or producers supply more, prices will fall. When consumers want more or producers supply less, prices will rise.
Change in Supply and Demand and Equilibrium Price
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Increase in both Demand and Supply
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Decrease in Demand and Increase in Supply
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Increase in Demand and Decrease in Supply
BACHELOR OF ARTS IN ECONOMICS Econ 111 – ECONOMIC ANALYSIS
Pangasinan State UniversitySocial Science Department – PSU Lingayen
Decrease in both Demand and Supply
